RIZAP Group Inc. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥80.67B
• Operating Income: ¥2.98B
• Net Income: ¥-1.86B
• EPS: ¥-7.08

Income Statement

Balance Sheet

Cash Flow Statement

Profitability Ratios

Year-over-Year Comparison

Share Information

Dividend Information

Full Year Forecast

Disclaimer

This data was automatically extracted from XBRL files. Please refer to the original disclosure documents for accuracy.

AI Financial Analysis

Executive Summary

Verdict: A mixed quarter—operating turnaround continued with sharply higher operating income, but bottom line swung to a sizeable net loss due to an unusually high tax expense, while cash flow remained robust. Revenue declined 3.5% YoY to 806.7, with gross profit of 379.6 and gross margin holding at 47.1%. Operating income surged 484.3% YoY to 29.9, implying prior-year operating income of roughly 5.1, driven by tighter cost control and improved operating leverage. Operating margin improved to 3.7%, an estimated expansion of about 309 bps YoY (from ~0.6% in the prior year based on implied revenue and operating income). Despite positive profit before tax of 13.1, the company booked income tax expense of 42.9, leading to a net loss of 42.2 and an extraordinarily high effective tax rate of 328.3%. EBITDA reached 141.9 (17.6% margin), supported by substantial depreciation and amortization of 112.0. Operating cash flow was strong at 133.2, materially exceeding net income (OCF/NI = -3.15x given negative NI), indicating cash earnings are stronger than reported accounting earnings this quarter. Free cash flow was a healthy 131.4 after modest capex of 15.0 and limited investing outflows (-1.8), and financing outflows were 91.0, leaving cash and equivalents of 245.7. The balance sheet shows total assets of 1,607.9 and equity of 596.1 (equity ratio 29.2%), with D/E of 1.70x—elevated versus conservative benchmarks but not at a distress level. ROE was -7.1% (DuPont: net margin -5.2%, asset turnover 0.502x, leverage 2.70x), and ROIC was 2.5%, below the 5% warning threshold, underscoring capital efficiency challenges. Equity-method investment income was negligible at -0.41, consistent with the company not being a trading company reliant on affiliates. Overall earnings quality is mixed: strong OCF and EBITDA provide comfort, but the net loss and outsized tax expense reduce visibility on sustainable bottom-line profitability. Forward-looking, if the tax anomaly normalizes and operating discipline persists, reported earnings can converge toward cash earnings; however, low ROIC and leverage constrain valuation re-rating until sustained margin and capital efficiency improvements are demonstrated. Data limitations (numerous unreported line items—non-operating details, current liabilities, interest expense) temper the certainty of our conclusions. Risk management should prioritize tax item volatility, working capital discipline, and deleveraging to lift ROIC toward mid-single digits.

Profitability Analysis

DuPont decomposition and insights: ROE (-7.1%) = Net Profit Margin (-5.2%) × Asset Turnover (0.502x) × Financial Leverage (2.70x). The dominant drag is net margin: despite an operating margin of 3.7%, the bottom line was pushed into a -5.2% net margin by a 42.9 tax expense against 13.1 PBT (effective tax 328%). Asset turnover at 0.502x reflects a capital-heavy footprint relative to revenue (assets 1,607.9 vs revenue 806.7 annualized pace ambiguity), while leverage at 2.70x amplifies losses into negative ROE. The largest change YoY is likely the net profit margin: operating profit rebounded sharply (OI +484% YoY), but the net margin deteriorated on tax effects; we infer prior-year net margin may have been less negative due to lower tax burden, though exact prior metrics are unreported. Business reason: operational restructuring and SG&A discipline lifted operating earnings, but deferred tax asset movements and tax valuation changes (IFRS) likely created a large tax expense despite positive PBT. Sustainability: operating improvement appears more durable if cost controls persist, but the tax charge looks non-recurring in magnitude; normalization should improve net margin. Concerning trends: ROIC at 2.5% is below the 5% warning threshold, indicating that even with better operations, the business is not yet earning its cost of capital. We cannot verify whether SG&A growth exceeded revenue growth due to lack of YoY SG&A disclosure.

Growth Assessment

Top-line contracted 3.5% YoY to 806.7, indicating lingering demand softness or portfolio pruning post-restructuring. Gross margin is solid at 47.1%, suggesting mix and pricing are holding. Operating income expanded to 29.9 (+484% YoY), showing strong operating leverage from cost base optimization. EBITDA of 141.9 (17.6% margin) supports the narrative of improved core earnings power. However, equity-method income contributed negatively (-0.41) and was immaterial to overall profit. The net loss (-42.2) was driven by a tax charge incongruent with PBT, clouding the translation of operational gains into net profit. Near-term outlook hinges on three drivers: sustaining SG&A efficiency, stabilizing revenue in core fitness/healthcare/retail brands, and normalizing tax effects. If revenue stabilizes and tax expense normalizes, earnings growth should track EBITDA growth; otherwise, reported EPS may lag cash earnings. Data gaps (no segment disclosure here) limit visibility into which businesses led the turnaround.

Financial Health

Liquidity: Current ratio and quick ratio are not calculable due to unreported current liabilities; thus, we cannot issue a definitive liquidity verdict. We do note current assets of 701.6 versus accounts payable of 204.9, receivables of 176.1, and inventories of 231.4—suggesting a decent cushion, but maturity mismatch risk cannot be fully assessed without short-term debt disclosure. Solvency: Equity ratio is 29.2% and D/E is 1.70x—above our conservative benchmark (1.5x) but below our explicit warning threshold of 2.0x; leverage is elevated and warrants monitoring. Interest-bearing debt and interest expense are unreported, so interest coverage cannot be calculated; this is a limitation for solvency assessment. No off-balance sheet obligations are disclosed in this dataset. Given the negative ROE and low ROIC, capital structure optimization (deleveraging) would enhance resilience.

Cash Flow Quality

OCF was 133.2 versus net income of -42.2, yielding OCF/NI of -3.15x; despite the negative ratio due to losses, the underlying message is strong cash generation relative to reported earnings. Drivers likely include non-cash D&A of 112.0 and positive working capital movements (exact components not disclosed). Free cash flow was solid at 131.4, after capex of 15.0 and modest investing outflows (-1.8). Financing cash outflows of 91.0 suggest debt reduction or other financing uses (details undisclosed). With cash and equivalents at 245.7, near-term liquidity appears adequate. We see no clear signs of aggressive working capital manipulation from the limited data; however, absence of detailed working capital breakdown (e.g., changes in payables/receivables/inventory) limits certainty.

Dividend Sustainability

Dividend data are unreported for the period; historically the company has been cautious on dividends during restructuring. With negative net income and low ROIC (2.5%), a conservative stance is prudent. That said, FCF of 131.4 provides capacity for modest shareholder returns if policy allows, but sustainability requires recurring net profitability and improved ROIC. Payout ratios and FCF coverage cannot be calculated from the provided data, and no dividend or buyback outflows are disclosed in the cash flows presented.

Risk Assessment

Business Risks:

• Revenue contraction (-3.5% YoY) indicating demand softness or portfolio downsizing risk
• Execution risk in ongoing cost optimization and restructuring to sustain operating margin gains
• Tax expense volatility (effective tax 328%) distorting net results and EPS visibility
• Low ROIC (2.5%) relative to cost of capital, implying value creation risk
• Brand and store productivity risks in fitness/healthcare/retail segments amid competition
• Inflationary pressure on wages and rents potentially squeezing SG&A

Financial Risks:

• Elevated leverage (D/E 1.70x) with equity ratio 29.2%
• Liquidity assessment constrained by unreported current liabilities and interest-bearing debt
• Potential covenant or refinancing risk if profitability remains weak
• Earnings sensitivity to working capital movements given business model

Key Concerns:

• Net loss (-42.2) despite positive operating income due to outsized tax expense
• Capital efficiency below threshold (ROIC 2.5%)
• Inadequate visibility on non-operating income/expense and interest coverage due to data gaps
• Sustainability of operating margin improvement without revenue growth

Investment Implications

Key Takeaways:

• Core operations improved materially: operating margin 3.7% vs ~0.6% implied last year
• Cash generation strong: OCF 133.2 and FCF 131.4 despite net loss
• Bottom line distorted by extraordinary tax expense (effective tax 328%)
• Balance sheet leverage elevated (D/E 1.70x) and equity ratio modest (29.2%)
• ROIC of 2.5% signals need for further portfolio optimization and deleveraging

Metrics to Watch:

• Normalization of tax expense and reconciliation to PBT
• Sustained operating margin and SG&A ratio trends
• Revenue trajectory in core segments (fitness/healthcare/retail)
• ROIC progression toward ≥5% and medium-term target levels
• Leverage and interest coverage once interest expense is disclosed
• Working capital turns (inventory and receivables days) and cash conversion

Relative Positioning: Within Japan’s consumer/fitness and specialty retail peers, the company shows improving operating execution and cash conversion but lags on capital efficiency (ROIC 2.5%) and carries higher financial leverage than conservative peers. Visibility on net profit is weaker due to tax volatility, placing it behind peers with cleaner P&L translation of EBITDA to EPS.

Disclaimer

This analysis was auto-generated by AI. Please note the following:

• No Guarantee of Accuracy: The accuracy and completeness of this analysis are not guaranteed. For accurate financial data, please refer to the original disclosure documents published on TDnet or other official sources
• Not Investment Advice: This analysis is for general informational purposes only and does not constitute investment advice under applicable securities laws. It is not a recommendation to buy or sell any specific securities
• At Your Own Risk: Investment decisions should be made at your own discretion and risk. We assume no liability for any losses incurred based on this analysis